Raghuram Rajan: Privatization of PSBs not panacea; need to cut govt mandates for PSBs

New Delhi, Dec 14 Pointing out that privatization of public sector banks isn't panacea for all ills, former RBI Governor Raghuram Rajan Friday made a case for reduction of uncompensated orders like loaning targets and pushing government conspires through parts of state-owned lenders.

He also said there is a need to reduce the Statutory Liquidity Ratio and substituting this with the liquidity inclusion proportions and net stable funding ratios set by Basel.

A week ago, the RBI chose to decrease SLR, the part of stores required to be obligatorily put resources into government bonds, by 0.25 percent each quarter starting January 2018. The adjusted decrease in SLR will proceed till it achieves 18 percent from the current 19.5 percent.

The banking system is overburdened with non-performing loans and there is a need to satisfactorily professionalize boards of PSBs, Rajan said including the legislature ought to get rid of board appointments to avoid unnecessary politicisation.

"Much of the problem lies in PSBs but private sector banks like ICICI and Axis Bank, and in addition a portion of the old private banks, have not been insusceptible. A portion of the discomfort originates from a general need to enhance administration, straightforwardness and motivators in the framework. In any case, the challenges in even some private banks propose that 'basic' arrangements like privatizing all open division banks might be no panacea," he said.

The former RBI governor also expressed concerns over uncompensated government mandates being imposed on PSBs for a long time.

"This is lazy government if an action is worth doing, it ought to be paid for out of budgetary assets. It also is against the interests of minority investors in PSBs. At long last, it doesn't draw the private division in to vie for such exercises," he said.

The government should incentivise all banks to take up activities it supposes attractive, not force it on a couple, particularly as the benefits related with a keeping money permit decrease, Rajan included.

Noting that among the more hazardous commands are loaning targets and necessary advance waivers, he said government-forced credit targets are regularly accomplished by surrendering proper due steadiness and making nature for future NPAs.

He also accentuated that the legislature should keep its banks very much promoted.

"This is basically great bookkeeping practice, for it keeps the administration from working up unforeseen liabilities on bank balance sheets that a future government will have to pay for," he said.

Rajan, who was 23rd Governor of the RBI, also seen that such a large number of dangers revert onto banks, including those of interest rate volatility that banks elsewhere typically lay off in markets.

"Too much project risk stays with banks because other money related instruments, for example, value and subordinate obligation can't be issued inexpensively. Hazard additionally returns through the secondary passage; Banks don't make advances to lodging designers as a result of their natural dangers. By the by, they make credits to NBFCs, who make advances to designers," he said.

To keep chance from coming back to bank balance sheets, NBFCs must be able to raise money directly from markets, he added.